6.Technique for Inventory Planning and Control

7/27/2019 6.Technique for Inventory Planning and Control

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Technique for Inventory Planningand Control

(from Turner et al, 1993)

The purpose of the inventory planning andcontrol function is to determine appropriate

inventory policies and to keep all associatedcost at a minimum.

Almost all inventory problems are concernedwith answering two fundamental questions:

(1) How much to order (either from a supplieror from our own production facilities) at onetime?

(2) When (or how often) to place an order?


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Procurement cost-the procurement cost of apurchased item is the order cost and

consists of the clerical cost of making upand processing a purchase requisition.

Carrying cost-carrying cost is the cost of holdinginventory and includes several component

cost:(1) The cost of money

(2) The cost of storage space

(3) The cost of obsolescence

(4) The cost of insurance and taxes


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The total cost as the sum of procurement costand carrying cost:

TC = total costPC = procurement cost for each order

CC = carrying per unit per year

D = annual demand (or usage) of the itemQ = quantity on each order placed ( lot size)

Qo = optimal lot size


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Number

ordered

Average inventory

Fig. Idealized inventory system

Constant usage rate


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Annual procurement cost = PC D/Q

Annual carrying cost = CC Q/2

Or total cost equation can be written as

TC=PCD/Q + CC Q/2

For example, that PC = $ 10.00 per order, CC =

$0.20 per unit per year, and D = 10.000units. If we order 2,000 units at a time, thenfrom equation we obtain :


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TC = $ 10 10 000/2000 + $ 0,2 2000/2= $ 50 + $ 200 = $ 250

The objective is to determine the particular value of

Q that will minimize the total cost equation.

The minimum value on the TC curve occurs at apoint where the curve zero slope

Differential calculus that the first derivative

of a mathematical function gives the slope(instantaneous rate of change) of the function

at a particular point.


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. In our case, we are hunting the pointwhere the slope is zero. Our approach,

then, is to take the first derivative ofthe total equation,

d(TC)/dQ= -PC D/Q2 + CC/2= 0

Qo = 2 PC D / CCSubtituting example : 2 $ 10 (10 000)/ $ 0,2

= 1000 units


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Total cost function

$TC

CCPC

-> Q


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Purpose of Operations Scheduling

The purpose of operation scheduling is toassign specific operating facilities with specificstart and end times indicated.

Operations scheduling attempts to assign workto the required facilities in such a way that allthe various cost associated withmanufacturing are minimized.

Orders (regular production orders frominventory control and special orders throughsales) are received periodically. Individual

jobs are assigned to specific facilities.


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Certain precedence restrictions must beobserved. As jobs progress through the

fecilities, they often must complete with otherjobs for the same scarce resources

Machines break down, some workers fail toappear and others perform below or above

standard. Tools break or wear out, materialsare defective,


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and machines go idle waiting for work frompreceding work centers. Orders arecanceled, reduced, or increased. Rawmaterials fail to arrive when expected. Sales

drop suddenly or increase sharply.Theobjectives of operations scheduling are:

(1) High percentage of orders completed ontime

(2) High utilization of facilities and workers(3) Low in-process inventory

(4) Low overtime and Low stockouts ofmanufactured items


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One of the oldest techniques available forsequencing and scheduling operation tofacilities is the Gantt chart. The Gantt chart is

very useful in showing planned work activitiesversus actual accomplishments on the sametime scale.

The basic Gantt scheduling chart is shown in

figure 7.9 operation assigned to each facilityare sequenced into a feasible schedule.


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The Gantt scheduling chart must be updatedvery frequently in order to reflect the

changing status of the shop. Certain jobs willtake longer than expected, while others willbe completed ahead of schedule. Machineswill break down, workers will be absent, and

materials will run out. All these factors makeit difficult to keepthe Gantt chart update on atimely basis

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6.Technique for Inventory Planning and Control